Litigation: all rise, as regulation and merger-mania drive growth

DLA Piper, HSF and DWF benefit from consolidation, while Freshfields’ global view makes it leader of the RPP pack, with a cool £4.5m. By Hannah Gannagé-Stewart

It is no surprise that litigators have been on a roll since the financial crash. Periods of economic downturn are the playground of contentious law and have been for decades.

The crash of 2008 spawned a global wave of top-level disputes. Court battles, however, have been slow to emerge, contrary to what some doom-mongers predicted at the lowest point of recession.

Instead, many corporates and financial institutions have been forced to deal with regulatory investigations that span continents, bat off the threat of class actions that threaten to undermine new-found financial stability and deal with the slow-burning risk of big-ticket litigation that brings both reputational and financial risk.

For litigators, the past five years have been an opportunistic period. Buoyed by international mergers for their firms, London’s litigators have found new routes to market at home and abroad, while demand for regulatory expertise has soared.

Clients at the eye of the storm have also been presented with opportunities, with the top priority being to take control of costs. For some, such as energy giant Shell, it has been the right time to increase competition between firms by cutting panel places. Other litigants are looking to cut fee deals and conditional fees arrangements have become more prevalent, while capped and fixed-fee deals have become differentiators.

Creating competition for panel places, as Citigroup did by threatening to remove certain firms from the roster, is another tactic being used to drive up performance. Other clients, such as Aviva, have requested a cut in the hourly rate.

Many firms are looking internally to deal with client demands while squeezing more value out of their own structures.

Growth has been universal among The Lawyer’s UK 200 top 15 litigation practices. In part, this has been driven by the merger-mania that has come to dominate the profession, but the field has also been buoyed by an increase in demand for contentious advice.

DLA, the world’s largest law firm, leads the pack, with contentious revenues of £585m for 2012/13, a 38 per cent rise on 2011/12’s £406m.

HSF: dominator

Despite a string of partner exits HSF continues to dominate the disputes market, with turnover up by 58.4 per cent, from £197.8m to £275.2m. Those departures included London corporate fraud and asset tracing head Simon Bushell, who went off to Latham & Watkins in February, while financial regulatory duo Martyn Hopper and Nikunj Kiri are both set to join Linklaters. Partner Ted Greeno, who had a strong relationship with British Sky Broadcasting, is to join Quinn Emanuel Urquhart & Sullivan.

The firm faced criticism that it had allowed competitors to get ahead by failing to make big inroads into the US market. It launched a New York office last September with a team of six partners from Chadbourne & Parke, including litigation chief Thomas Riley. This came as the firm was on the verge of a tie-up with Australia’s Freehills. Many litigators suggest that 2012/13 was the year HSF decided to join the race for global domination.

Yet, from a revenue per partner (RPP) point of view, HSF is up there with the global firms. DLA Piper, with its 500 litigation partners, has an RPP of £1.17m, compared with £2.08m for HSF’s 132. The reality is that HSF is also ahead of Hogan Lovells, which stands at £1.57m and 237 partners, Norton Rose Fulbright at £996,000 and Clyde & Co, which puts its RPP at £1.17m.

The standout performance, however, comes fromFreshfields Bruckhaus Deringer, where litigation revenue of £355.4m puts RPP at £4.55m for the 78-partner practice.

Freshfields has seen demand for contentious advice delivered on a global scale soar since 2008. The results are clear – at the latest year-end, revenues generated by the disputes practice increased 15 per cent to £355.4m. This represents growth of 101 per cent for the disputes group since the 2007/08 financial year, when the figure was £177m.

In the same period Clifford Chance’s disputes revenue grew 15.6 per cent, from £199m in 2007/08 to £230m at the latest year-end.

While each firm structures its disputes practice differently, these figures show Freshfields has broken away from the magic circle when it comes to dispute resolution.

Attempting to compete with its US counterparts, Freshfields moved IP partners into the contentious practice during the last quarter of 2012/13. Global disputes head Chris Pugh cites technology giant Apple as one client doing battle in courts around the world as it attempts to protect the brand.

Moving IP into the dispute resolution practice added seven partners to the group and put total partner headcount at the year-end at 85. However, those seven have not been included in our table, to better reflect Freshfields’ average headcount for the year.

Freshfields is not alone in having targeted global litigation instructions. Since merging with Hogan Hartson in May 2010, Lovells – or Hogan Lovells as it is now known – has moved steadily up the litigation financial rankings. Nevertheless, it has been a slow year of growth for the disputes practice, where revenues moved up 2.3 per cent – the second lowest growth rate behind DAC Beachcroft – to £374m.

Another global contender, Norton Rose Fulbright, fared better, with turnover growth of 9.2 per cent, to £287.4m. Admittedly, growth has slowed compared with the previous financial year but that is because the firm did not spend its time pursuing mergers and global office openings. The dispute resolution practice now accounts for more than a third of overall revenues (34 per cent). At 22 per cent, Emea is the smallest contributor to that income stream and remains the main focus for growth.

The post-2008 ‘litigation tsunami’ may have been felt domestically, but the cross-jurisdiction battles are only just filtering through. As the tide goes out again, many in management feel that the sector has experienced a shift that is here to stay.

Riskier business can mean more court battles to resolve and this is where the litigators can step in. Freshfields’ Pugh speaks for many when he explains the new trend.

“Companies with global business will continue to explore new markets, with difficult risks to navigate,” says Pugh.

Davison

Hogan Lovells’ Michael Davison, who succeeded Patrick Sherrington as disputes head in March, agrees, adding that “in 2008/09 there wasn’t a tsunami of litigation because people didn’t have the money to pay for it – as the economy has picked up, so has litigation”.

Norton Rose Fulbright Emea litigation head Deirdre Walker predicts there will be no sudden drop-off in litigation instructions when solid economic growth returns.

“At the end of the recession certain parts of the disputes practice may drop off, but from our perspective the focus is on areas of litigation that are likely to be significant on a continuing basis,” she says.

“For example, IP and patent protection are part of our clients’ day-to-day toolkit.”

For the firms that have spent the past five years breaking into new markets and building relationships, management will be tasked with balancing the needs of each jurisdiction while pushing for growth.

Clyde & Co is another firm to have witnessed a period of rapid expansion in the past five years. Litigation revenues pushed upwards to £239m from £199m in what was a year of office opening and association forming. It started the financial year with a new base in Libya and a month later moved to open in Australia.

Clydes’ litigation head Ben Knowles says economic volatility has created room for growth for some firms, but political instability has also created opportunities.

Like many of its peers, Clydes has invested in South East Asia markets while developing its presence in the Middle East, but it is the office openings in untapped markets such as Libya that have helped Clydes stand out. Just last week (30 October) the firm received regulatory approval to establish a joint venture in Chongqing with local firm West Link Partnership, making it the first global commercial firm to have a presence in South West China.

Knowles says South East Asia is critical to the growth of the firm.

DAC: slow riser

With the litigation markets going global some firms have felt the squeeze from the bottom through the emergence of disputes boutiques, while feeling pressure from the renewed focus on disputes from the top-tier.

DAC Beachcroft dropped to the bottom of the table with an increase of just 1.8 per cent last year, despite litigation accounting for 60 per cent of its revenue. RPP did just break through the £1m mark, at £1.02m, due to a fall in partner numbers, from 127 at the end of 2011/12 to 111 last year.

Clients are pushing for big changes in the way they pay for heavyweight legal teams. Fixed fees, capped rates and contingency fee deals are all in demand, while the options for funding cases are becoming more varied. All this is creating opportunities for litigators willing to be flexible to meet client demands.